IRAQ: ECONOMIC REFORM FALLS SHORT OF EXPECTATIONS (DELETED)

Created: 8/1/1989

OCR scan of the original document, errors are possible

Iraq: Economic. ReformriotM

economic reform program hss helped but far from cured iu rxanomic ptMHemi. The reform measuresmproved the availability of cortsurnet loods. boosted emciency in tha public sector, and raised the competency of Iraqi economic leaders and managers. Widsspeead discontent over rising inflation and the privateeluctance to invest in the country's economy, however, have slowed the pace of liberalization and limited us impact Baghdad plans further reforms, but they arenlikeiy to be broad enough to help ie economy significantly, especially given President Saddam Husayn's penchant for mainuiriing tight control. The economy remains heavily dependent cn the state-con: re lied oil seaor. and prospectsarge rise in oil revenues dunng tbe next few >earsare ilimJ

Reform Measures Since7 Public-Sector Rettructuriag. Iraq initially focused on increasing cfnciancy in the bloated public sector. The regime shrank, merged, and eliminatedorganizations a: ai! levels, including the ministerial level. Statebureaucratic layer between ministries and statewere abotisbed. giving the enterprises more autonomy. Tne regime dosed most unprofitable enterprise

BagSdad repealed its labor law. .hie: bad guaranteed employment for all Iraqis, allowing state enterprises to transfer and release employees. Western press reports indicate the government gav-thousands of cm! ser-anu the option of resigning without penalty or acceptingpublic- sector jobs, often as lower-status factory workers- Iraq alio introdocedfor pubiic-MCtor employes, including profit snaring and productivity bonuses.

Privatization. Iraq has conceatratcd * en encouraging pri*ate-sectorin the economy. Press reports indicate Baghdad has ofTered atusinesses and land ps-cels for lale, mostly ia the agriculture, light industry, and serv.cr

Reform

Striata economic probiemi that thrtattned Iraq's slaying power in iht war with Iran prompted Boghead7 toadoptitt most sweeping economic reforms liner nationalizationftergvns*and-butltr"policy lhat drained its financial resources in ike early years of the mar. Iras3 cdopted strict tritj measures and began borrowing heavily from foreign governments and bonks. Baghdad's financial situationrisis point6 -hen law world Oil prices depressed revenue! and large debt payments fell due. Iraq's inability to service Us debi caused most lendtrt io cut Off credit linesaghdad and forced ihe regime lo adopt even more austere measures. The following year Iraqrog'am lo liberalise Its socialistopposition from some Bath Partyof* tht urgency of lis economic probltms amd strong support from President Saddam Husayn.-

sectors. The government has also sold shares of public-sector industries to the private sector and increased the share of private ownership allowed ir, nixed cempaaies percent

Sew Foreign Ssxkangt, Trade, tad latitatgtlttiont. To promote exports andhe regime revised reflations to allow exporters to retainercent of their foreign exchange earnings to buy imports instead of converting them into Iraqi dinars, according to press reports. In addition, imports bought with foreign exchange held outside Iraqi banks apt no longer subject to quotas under tht annual foreign trad* plan. The regime also allocated the privateighernscs jndei ; i

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Iraqr jev-jitd new inceatives isrmia investment,year laa holiday for private industrial enterprises and ibe opening of somecets to tie private sector witaout pubJk-tecor competition. Baghdad passed iu first foeeign ir.vestmtni la*8 to expand opportunitiea forArab invesineat. Iraq offers apeeuUy favoraate incentives for Arab investrnenu exceeding JCO.0O0 Iraqi dinars, including profit repatriation ofcreen: of the original investment per year, partial irscocse ux exemption, exclusion of output from pen* controls, and cancellation of import taxes on inputs.'

rVtw Economic lAadtnhip. To implement Iraq's new economic poiicies. Saddam brought io many upericrsccd. often Western-educated uxiaoerau7 to replace loss qualified Ba'*Ji Party ideologues in key economic positions Saddam transferred several ofocriu from ihe President's Otnee. wbere he had apparently been grooming ibetn. Saddam also expanded the sire and authority of the President's Office to increase bis control of economic affairs- Asnassst

Limited Impact of Reforms

The reform prograrn has bad positive renslu. but they have generally fallen short of Baghdad's expectations. The most noticeable efTect has been on supplies and prices af opesaroer goods. Privatization of the agricultural sector and ihe removal of many agricultural price controls have caused supplies cf locally produced frsiiu.ccnaie mcau. and eggs to increase greatlyore luxury goods bavs also become available, especially sines the cease-fire with Iran last year, as private businessmen have used foreign exchang: beid in offshore accounts to import consumer goods, according to press reports

Despite grea'.er supplies, prices of consumer goodsisen sharply, especially since Use cease-ft re. as the Iraqi populace boosted spending to meet peat-sip

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